ONTARIO SUPERIOR COURT OF JUSTICE (Commercial List)

Transcription

1 ONTARIO SUPERIOR COURT OF JUSTICE (Commercial List) Court File No. CV CL IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1992, c. 27, s.2, AS AMENDED AND IN THE MATTER OF CERTAIN PROCEEDINGS TAKEN IN THE ISLE OF MAN WITH RESPECT TO BANNERS BROKER INTERNATIONAL LIMITED APPLICATION OF MILES ANDREW BENHAM AND PAUL ROBERT APPLETON, IN THEIR CAPACITY AS JOINT LIQUIDATORS OF BANNERS BROKER INTERNATIONAL LIMITED, UNDER PART XIII OF THE BANKRUPTCY AND INSOLVENCY ACT (CROSS-BORDER INSOLVENCIES) MOTION RECORD (Ex Parte Motion For Banking Records) January 8, 2016 CASSELS BROCK & BLACKWELL LLP 2100 Scotia Plaza 40 King Street West Toronto, ON M5H 3C2 David S. Ward LSUC #: 33541W Tel: Fax: Larry Ellis LSUC#: 49313K Tel: Fax: Erin Craddock LSUC #: 62828J Tel: Fax: Lawyers for the Receiver and Joint Liquidator Legal*

2 -2- TO: CIBC Commerce Court Operations Commerce Court West 199 Bay Street, B-2, Securities Level Toronto, ON M5L 1G9 Attn: Sharon Forsyth AND TO: Royal Bank of Canada 200 Bay Street, South Tower Toronto, ON M5J 2J5 Attn: Nicole Brown Dunbar AND TO: RBC Branch: Harmony Rd. & Taunton 800 Taunton Rd E Oshawa, ON L1H 7K5 Attn: Erin Shields Erin.shields@rbc.com AND TO: CIBC Branch: 401 & Stevenson Banking Centre 540 Laval Drive Oshawa, ON L1J 0B5 Attn: Helen Mirmina helen.mirmina@cibc.com AND TO: CIBC Branch: Front & Parliament Banking Centre 230 Front Street East Toronto, ON M5A 1E7 Attn: Yogita Vashishth yogita.vashishth@cibc.com Legal*

3 INDEX

4 ONTARIO SUPERIOR COURT OF JUSTICE (Commercial List) Court File No. CV CL IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1992, c. 27, s.2, AS AMENDED AND IN THE MATTER OF CERTAIN PROCEEDINGS TAKEN IN THE ISLE OF MAN WITH RESPECT TO BANNERS BROKER INTERNATIONAL LIMITED APPLICATION OF MILES ANDREW BENHAM AND PAUL ROBERT APPLETON, IN THEIR CAPACITY AS JOINT LIQUIDATORS OF BANNERS BROKER INTERNATIONAL LIMITED, UNDER PART XIII OF THE BANKRUPTCY AND INSOLVENCY ACT (CROSS-BORDER INSOLVENCIES) INDEX Tab Description 1 Notice of Motion returnable January 13, The Fourth Report of the Receiver dated January 8, Draft Order Legal*

5 TAB 1

6 ONTARIO SUPERIOR COURT OF JUSTICE (Commercial List) Court File No. CV CL IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1992, c. 27, s.2, AS AMENDED AND IN THE MATTER OF CERTAIN PROCEEDINGS TAKEN IN THE ISLE OF MAN WITH RESPECT TO BANNERS BROKER INTERNATIONAL LIMITED APPLICATION OF MILES ANDREW BENHAM AND PAUL ROBERT APPLETON, IN THEIR CAPACITY AS JOINT LIQUIDATORS OF BANNERS BROKER INTERNATIONAL LIMITED, UNDER PART XIII OF THE BANKRUPTCY AND INSOLVENCY ACT (CROSS-BORDER INSOLVENCIES) NOTICE OF MOTION (Ex Parte Motion for Banking Records) Paul Robert Appleton and Miles Andrew Benham in their capacity as Joint Liquidators and Foreign Representatives (the Joint Liquidators ) of Banners Broker International Limited ( BBIL ), and msi Spergel inc., in its capacity as receiver of BBIL and investigatory receiver of (i) Ontario Incorporated o/a Local Management Services; (ii) Parrot Marketing Inc. (formerly o/a Canada Limited ); (iii) Ontario Corporation; (iv) Stellar Point Inc. (formerly o/a Canada Inc. and Bannersbroker Limited ); (v) Dixit Holdings Inc. (formerly o/a Canada Limited ); (vi) Canada Inc. o/a Dixit Consortium Inc.; (vii) Dreamscape Ventures Ltd.; and (viii) any other entity operating under the business names Bannersbroker, Banners Broker, Bannersbroker Limited, Bannersmobile, BannersMobile or Banners Broker Belize (the Receiver ) will make a motion to a Judge presiding over the Commercial List on January 13, 2016 at 10:00 a.m., or as soon after that time as the Legal*

7 -2- Motion can be heard at the court house, 330 University Avenue, 7th Floor, Toronto, Ontario, M5G 1R7. PROPOSED METHOD OF HEARING: The motion is to be heard orally. THE MOTION IS FOR: (a) An order substantially in the form attached as Schedule A hereto, directing that the Canadian Imperial Bank of Commerce ( CIBC ) and the Royal Bank of Canada ( RBC, with CIBC, collectively, the Financial Institutions ), provide the Receiver with transaction details in respect of 50 identified account transactions sufficient for the Receiver to trace the funds disbursed by BBIL, and/or the Associated Corporations (defined below), and/or the Additional Dixit Entities (defined below), and to locate BBIL assets and any proceeds thereof; (b) An order substantially in the form attached as Schedule A hereto directing CIBC to provide the Receiver with account statements for the VISA credit card accounts bearing numbers,, and (collectively, the Visa Cards ); and (c) Such further and other relief as this Honourable Court may deem just. Legal*

8 -3- THE GROUNDS FOR THE MOTION ARE: This Motion (a) The Receiver is seeking production of financial records in respect of certain limited and specifically indentified Banners Broker account activity. The information sought should allow the Receiver to pursue its accounting analysis and, in doing so, advance efforts to locate assets and identify potential avenues of recovery. Background (b) This is a foreign recognition and cross-border insolvency proceeding involving Canada and the Isle of Man. The debtor, BBIL, was an internet advertising business operating both directly and through related entities and agents around the world. The company is believed to have hundreds of thousands of individual unsecured creditors located around the world. (c) Winding up proceedings commenced in the Isle of Man in January Seven months later, in August 2014, the Isle of Man proceedings were recognized in Canada as foreign proceedings for the purposes of Part XIII of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3, as amended (the BIA ). (d) msi Spergel inc. was appointed receiver of BBIL in Canada. The Receiver s mandate was expanded in October 2014 to include certain investigatory authority in respect of five corporations (and six business names/styles) Legal*

9 -4- believed to be closely associated with BBIL, and which had been identified by the Toronto Police Services Financial Crime Unit as being integral to an alleged criminal enterprise in which BBIL was a central part, namely (the Associated Corporations ): (i) Ontario Incorporated o/a Local Management Services ( LMS ); (ii) Parrot Marketing Inc. (formerly o/a Canada Limited ) ( Parrot ); (iii) Ontario Corporation ( 234 ); (iv) Stellar Point Inc. (formerly o/a Canada Inc. and Bannersbroker Limited ) ( Stellar Point ); (v) Dixit Holdings Inc. (formerly o/a Canada Limited ) ( Dixit Holdings ); and (vi) Any other entity operating under the business names Bannersbroker, Banners Broker, Bannersbroker Limited, Bannersmobile, BannersMobile or Banners Broker Belize. (e) On August 7, 2015, the Receiver s mandate was expanded to include additional investigational authority in respect of Canada Inc. o/a Dixit Consortium Inc., and Dreamscape Ventures Ltd. (collectively, the Additional Dixit Entities ). Legal*

10 -5- (f) The principal of LMS, Parrot and 234 is Christopher George Smith ( Smith ). Rajiv Dixit ( Dixit ) is the principal of Stellar Point, Dixit Holdings and the Additional Dixit Entities. (g) Smith and Dixit were arrested and charged on December 9, 2015, with violations of the Criminal Code, R.S.C. 1985, c. C-46 (the Criminal Code ), and the Competition Act, RSC 1985, c. C-34 (the Competition Act ). They were criminally charged with (i) defrauding the public over $5,000; (ii) possession of proceeds of crime; and (iii) laundering proceeds of crime. They were also both charged under the Competition Act with (i) operating a pyramid scheme; and (ii) making false or misleading statements. Efforts to Secure Books, Records, Accounting (h) Securing the production of the records of BBIL, the Associated Corporations and the Additional Dixit Entities in accordance with the Receiver s court ordered mandate has proven difficult and time-consuming. As detailed in the Third Report of the Receiver, dated July 30, 2015 (the Third Report ): (i) Banners Broker lacked a document management system and records retention system; Legal*

11 -6- (ii) receipts and pay-outs were frequently handled non-systematically. Inter-company transfers were not recorded properly, or at all. Other payments were made in cash; (iii) the police executed eight search warrants in February 2015 to assist in their investigation. Thousands of documents and over one hundred electronic devices were seized and are currently not available to the Receiver for the purpose of its investigation; and (iv) Banners Broker entities did not utilize a professional accounting firm or have an in-house accounting professional. (i) Since its appointment, and as further detailed in the Third Report, the Joint Liquidators and the Receiver have made inquiries of numerous financial institutions both in Canada and abroad. The Receiver pursued written documentary productions requests of all depository Schedule I, II, and III financial institutions in Canada. The productions requests were initially specific to BBIL, but were later expanded to include financial records and accounts in respect of the Associated Corporations and the Additional Dixit Entities. (j) To date, the Receiver has made written requests for productions to approximately 100 financial institutions, 9 payment processors, and 46 other third parties. Legal*

12 -7- (k) As of January 13, 2016, the Receiver has received financial records that are responsive to its inquiries from the following Canadian financial institutions: (i) CIBC; (ii) TD Canada Trust; and (iii) RBC. Unidentified Transactions (l) The financial information that has been produced to the Receiver is of varying degrees of completeness. Consequently, there remain some material gaps in the Receiver s ability to complete a reasonably detailed accounting of the receipt and disbursement of BBIL funds. For example, the Receiver has identified US$1.7 million in disbursements made by Dixit or entities controlled by him from the Accounts, that the Receiver has been unable to trace, out of a total of US$16.7 million in receipts by Dixit or entities controlled by him. (m) More particularly, the Receiver has reviewed account statements in respect of 7 bank accounts belonging to Parrot Marketing, Stellar Point, Dixit Holdings, and the Additional Dixit Entities (the Accounts ). During the course of this review the Receiver has identified 50 transactions of interest, all over $5,000 (the TOI ) in respect of which the Receiver has been unable to identify either the source of the credit to, or the recipient of the debit from, Legal*

13 -8- the Accounts. The total value of these unidentified transactions is US$1.7 million. This represents a gap in the Receiver s accounting. (n) Many of the TOIs appear to be electronic funds transfers or online banking transactions. Account statements produced do not contain any information regarding either the source of the funds in the case of a credit to the account, or the recipient of the funds in the case of a debit to the account. Visa Cards (o) During the course of review of bank accounts belonging to Stellar Point and Dixit Holdings, the Receiver has identified three Visa Cards which received a total of over US$2.2 million from the Stellar Point and Dixit Holdings bank accounts. Visa card ( Visa 3 ) alone received over US$1.3 million in payments; (p) On May 13, 2015 counsel for the Receiver wrote to CIBC requesting additional information with respect to the Visa Cards, as well as 21 other bank or credit card accounts (the CIBC Request ). CIBC responded on May 21, 2015 and agreed to provide account documents for six of the 24 accounts. However, CIBC declined to provide account documents for the remaining 18 accounts, including the Visa Cards, because the accounts were not in the names of the parties identified in the order and therefore determined to not be a part of the order. Legal*

14 -9- (q) Earlier this fall, and subsequent to the CIBC Request, the Receiver reviewed documents relating to Stellar Point produced by Dixit. Included in those documents are an incomplete set of account statements for Visa 3 that confirm that the card is in Dixit s name. Similarly, Visa is either in Dixit s name or linked to the Visa 3 account in Dixit s name. (r) The Receiver has not been able to identify the account holder of Visa. Necessity for Relief Sought (s) The Receiver believes that the Financial Institutions would have additional and more detailed transaction information relating to the source and disposition of each TOI (the TOI Records ). Such detail, to the extent it goes beyond the summary descriptions appearing on the account statements, will enable the Receiver to advance its mandate to locate and account for BBIL and related corporation assets. (t) To the same end, CIBC would have account statements (with the TOI Records, collectively, the Records ) for the Visa Cards which received over US$2.2 million in payments from the US$16.7 million in receipts by Dixit or entities controlled by him. (u) In cases where fraud has been alleged and a party seeks access to records in order to trace and preserve assets that in equity belong to the party, the Legal*

15 -10- Court has jurisdiction to make orders designed to ascertain the whereabouts of that property, including bank records; (v) The Financial Institutions are the sole reliable and practicable source of the information sought. The Receiver s strong preference is to obtain Banners Broker related business and financial information from independent third party financial institutions and service providers rather than rely solely on the former principals of Banners Broker to produce records. Third party produced information can likely be more efficiently obtained and will be reliable and complete. (w) The production of the Records is necessary to enable the Receiver to advance its mandate. Without access to the Records, the Receiver cannot complete a reasonably detailed BBIL flow of funds analysis. (x) The Receiver is willing to indemnify the Financial Institutions for their reasonable costs of producing the required records. Ex Parte to Smith and Dixit (y) Smith and Dixit stand charged of multiple criminal charges including fraud and money laundering. The Toronto Police Service has also alleged that funds were funnelled to a number of offshore accounts in Belize, St. Lucia, Cyprus and others. (z) In these circumstances, the Receiver is concerned that if Smith, Dixit, BBIL, the Associated Corporations and the Additional Dixit Entities (the Parties ) Legal*

16 -11- were provided with notice of the within motion they would have the opportunity to move any funds remaining in Canada beyond the reach of their creditors and the Receiver, and outside of the jurisdiction of this Court. The Parties have already demonstrated the capacity and inclination to systematically transfer funds abroad. (aa) In light of the criminal charges, the Parties demonstrated capacity to move funds globally, and the Receiver s court-ordered mandate to identify and recover BBIL assets, the Receiver s interest in identifying and recovering BBIL assets outweighs any confidentiality interest that the Parties may have in the Records. (bb) Similarly, it would be impracticable to provide the Parties with notice of the within motion without compromising the efficacy of the relief sought. There is a risk that if the Parties were provided with notice of the motion they may move funds out of Canada and the jurisdiction of this Court. Notice to Financial Institutions (cc) The Financial Institutions have cooperated with the Receiver to date and the Receiver intends to work cooperatively with them going forward. The Motion is intended to provide the Financial Institutions with such appropriate legal direction and certainty as they may require to address the Receiver s requests regarding the TOI and the Visa Cards. To the extent that the Financial Institutions have any issues with respect to what they are Legal*

17 -12- being asked to do they will are served with these motion materials and will have an opportunity to bring such concerns forward. Sealing Order (dd) Confidential Appendix B to the Fourth Report document s the Receiver s most up to date Flow of Funds Analysis. This accounting provides the Receiver s best assessment of total funds received from Banners Broker affiliates, together with how such funds were utilized. (ee) Due to the sensitive and confidential nature of the Flow of Funds Analysis, the ongoing nature of this proceeding, and the previously court-ordered confidentiality obligations of the Receiver, it is necessary that the appendix be sealed in the public court file. General (ff) The receivership appointment orders in these proceedings; (gg) Part XIII of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (sections 267 to 284) which govern cross-border insolvencies. (hh) Sections 96, 101, 137(2) of the Courts of Justice Act. (ii) Rules 1.04, 2.01, 2.03, 3, 30, 37, and 40 of the Rules of Civil Procedure. (jj) Such further and other grounds as the lawyers may advise. Legal*

18 -13- THE FOLLOWING DOCUMENTARY EVIDENCE will be used at the hearing of the Motion: (a) The Fourth Report of the Receiver, dated January 8, 2016; (b) Such further and other evidence as the lawyers may advise and this Honourable Court may permit. January 8, 2016 CASSELS BROCK & BLACKWELL LLP 2100 Scotia Plaza 40 King Street West Toronto, ON M5H 3C2 David S. Ward LSUC #: 33541W Tel: Fax: Larry Ellis LSUC#: 49313K Tel: Fax: Erin Craddock LSUC #: 62828J Tel: Fax: Lawyers for the Receiver and Joint Liquidators TO: CIBC Commerce Court Operations Commerce Court West 199 Bay Street, B-2, Securities Level Toronto, ON M5L 1G9 Attn: Sharon Forsyth Legal*

19 -14- AND TO: Royal Bank of Canada 200 Bay Street, South Tower Toronto, ON M5J 2J5 Attn: Nicole Brown Dunbar AND TO: RBC Branch: Harmony Rd. & Taunton 800 Taunton Rd E Oshawa, ON L1H 7K5 Attn: Erin Shields Erin.shields@rbc.com AND TO: CIBC Branch: 401 & Stevenson Banking Centre 540 Laval Drive Oshawa, ON L1J 0B5 Attn: Helen Mirmina helen.mirmina@cibc.com AND TO: CIBC Branch: Front & Parliament Banking Centre 230 Front Street East Toronto, ON M5A 1E7 Attn: Yogita Vashishth yogita.vashishth@cibc.com Legal*

20 IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1992, c. 27, s.2, AS AMENDED Court File No. CV CL APPLICATION OF MILES ANDREW BENHAM AND PAUL ROBERT APPLETON, IN THEIR CAPACITY AS JOINT LIQUIDATORS OF BANNERS BROKER INTERNATIONAL LIMITED, UNDER PART XIII OF THE BANKRUTPCY AND INSOLVENCY ACT (CROSS-BORDER INSOLVENCIES) ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST PROCEEDING COMMENCED AT TORONTO NOTICE OF MOTION CASSELS BROCK & BLACKWELL LLP 2100 Scotia Plaza 40 King Street West Toronto, ON M5H 3C2 David S. Ward LSUC#: 33541W Tel: Fax: Larry Ellis LSUC#: 49313K Tel: Fax: Erin Craddock LSUC #: 62828J Tel: Fax: Lawyers for the Receiver and Joint Liquidators Legal*

21 TAB 2

22 FOURTH REPORT OF MSI SPERGEL INC., IN ITS CAPACITY AS COURT-APPOINTED RECEIVER OF BANNERS BROKER INTERNATIONAL LIMITED January 8, 2016 Legal*

23 ONTARIO SUPERIOR COURT OF JUSTICE (Commercial List) Court File No. CV CL IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1992, c. 27, s.2, AS AMENDED AND IN THE MATTER OF CERTAIN PROCEEDINGS TAKEN IN THE ISLE OF MAN WITH RESPECT TO BANNERS BROKER INTERNATIONAL LIMITED APPLICATION OF MILES ANDREW BENHAM AND PAUL ROBERT APPLETON, IN THEIR CAPACITY AS JOINT LIQUIDATORS OF BANNERS BROKER INTERNATIONAL LIMITED, UNDER PART XIII OF THE BANKRUPTCY AND INSOLVENCY ACT (CROSS-BORDER INSOLVENCIES) FOURTH REPORT OF THE COURT-APPOINTED RECEIVER OF BANNERS BROKER INTERNATIONAL LIMITED ( FOURTH REPORT ) January 8, 2016

24 TABLE OF CONTENTS I. OVERVIEW 1 II. III. IV. BACKGROUND o Foreign Recognition Proceedings o Discovery of Criminal Investigation and Restraint Orders o Receiver s Motion for Additional Investigative Authority o Order for Continued Restraint of Payment Processor Monies o Receiver s Motion for Additional Investigatory Authority Over the Additional Dixit Entities DEVELOPMENTS SINCE LAST REPORT RELEVANT TO THIS MOTION o Dixit s Cease and Desist Demand o Dixit Moves to British Columbia o Dixit Produces Certain Documents to the Receiver o Criminal Charges Against Dixit and Smith EVIDENCE DIRECTLY RELEVANT TO THE PRODUCTION REQUEST o Difficulties Obtaining Documents and Records o Receiver Identifies Transactions of Interest (or TOI s) o Visa Card Statements o Reasons for Seeking Production Directly from Financial Institutions V. EX PARTE NATURE OF THIS MOTION (IN RESPECT OF SMITH AND DIXIT) 18 VI RECOMMENDATIONS 18 Legal*

25 TABLE OF APPENDICES A. Copy of Cease and Desist Notice B. Flow of Funds Analysis (Confidential Appendix to be sealed by the Court) C. Confidentiality Order dated October 23, 2014 D. Press Release from Toronto Police Service E. Schedule of Transactions of Interest F. Request to CIBC dated May 13, 2015 G. CIBC Response dated May 21, 2015 Legal*

26 1 I. Overview 1. This is the fourth report to court (the Fourth Report ) of msi Spergel inc. in its capacity as court-appointed receiver (the Receiver ) of Banners Broker International Limited ( BBIL ). This report is filed in support of the Receiver s motion (the Motion ) for an order substantially in the form attached at Tab 3 to the motion record: (a) directing that the Canadian Imperial Bank of Commerce ( CIBC ) and the Royal Bank of Canada ( RBC with CIBC, collectively, the Financial Institutions ) provide the Receiver with transaction details in respect of 50 identified account transactions sufficient for the Receiver to trace the funds disbursed by BBIL, and/or the Associated Corporations (defined below), and/or the Additional Dixit Entities (defined below), and to locate BBIL assets and any proceeds thereof; (b) directing CIBC to provide the Receiver with account statements for the VISA credit card accounts bearing numbers,, and (collectively, the Visa Cards ); and (c) such further and other relief as this Honourable Court may deem just. 2. This Fourth Report addresses matters relevant to the Receiver s request for the production of certain banking records from the Financial Institutions (the Production Request ). The Receiver is in the process of preparing a further and more detailed report that will provide an update to the court on all matters that have transpired in the receivership proceeding since its third report to court dated July 30, 2015 (the Third Report ). 3. The section of this report dealing with the Production Request begins at paragraph 27, page 7.

27 2 4. All court materials filed, including previous receiver s reports and court orders and endorsements issued in these proceedings are available on the Receiver s website at: 5. The following section of this report provides a high level summary of the receivership proceedings to date. II. Background Foreign Recognition Proceeding 6. Banners Broker International Limited ( BBIL ) was central to a group of several related companies and service providers. Together they operated the Banners Broker online enterprise, a platform whereby registered members known as affiliates could advertise their businesses on websites within the Banners Broker network of publishers while, at the same time, earn revenues as an advertising publisher through specialized and targeted publisher sites created, designed and hosted by BBIL ( Banners Broker ). 7. Pursuant to an Order of His Honour the Deemster Doyle, First Deemster and Clerk of the Rolls of the High Court of Justice of the Isle of Man, BBIL was placed into liquidation under section 174 of the Companies Act 1931 of the Isle of Man on February 26, Miles Andrew Benham and Paul Robert Appleton were appointed as joint liquidators ( Joint Liquidators, with the Receiver, the Court Officers ) of BBIL ( Isle of Man Proceedings ). 9. On August 22, 2014, on application of the Joint Liquidators, the Honorable Madam Justice Matheson, of the Ontario Superior Court of Justice (Commercial List) granted an order ( Initial Recognition Order ): (a) recognizing the Isle of Man Proceedings as a foreign main proceeding for the purposes of section 268 of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 ( BIA ); Legal*

28 3 (b) recognizing the Joint Liquidators as the foreign representative ( Foreign Representative ) of BBIL for the purposes of section 268 of the BIA; and (c) granting a stay of proceedings in respect of actions concerning BBIL s property, debts, liabilities or obligations. 10. Also on August 22, 2014, Justice Matheson issued a supplemental order (foreign main recognition) ( Supplemental Order ): (a) appointing msi Spergel inc. as Receiver of BBIL s assets, undertakings and properties, including the proceeds thereof ( Property ); (b) empowering the Receiver to identify and realize upon the Property, including taking steps to access all information relating to BBIL s accounts at any financial institution; (c) authorizing the Receiver to conduct examinations of the former principals of BBIL, as well as any other persons that the Receiver reasonably believes may have knowledge of BBIL s trade, dealings and Property; (d) authorizing the Receiver to provide such information and assistance to the Foreign Representative in the performance of its duties as the Foreign Representative may reasonably request; and (e) authorizing the Receiver to coordinate the administration and supervision of BBIL s assets and affairs with the Joint Liquidators as Foreign Representative of the Isle of Man Proceeding. 11. The Supplemental Order that appointed the Receiver provides the Receiver with the mandate to assist the Foreign Representative in the wind-up of BBIL, including the identification of and realization upon BBIL assets for the benefit of creditors. Consistent with the Model Legal*

29 4 Receivership Order, the Receiver s powers in respect of BBIL extend to accessing all manner of relevant information, and the taking of possession of assets. Discovery of Criminal Investigation and Restraint Orders 12. In September 2014, the Receiver was made aware of criminal proceedings before the Ontario Court of Justice arising from a Toronto Police Services Financial Crime Unit investigation into Banners Broker s operations in Canada and Banners Broker principals, Christopher G. Smith ( Smith ) and Rajiv Dixit ( Dixit ). 13. Specifically, the Receiver obtained copies of several ex parte restraint orders ( Criminal Restraint Orders ) obtained by the Ministry of the Attorney General, Crown Law Office-Criminal ( Crown ). The orders, issued pursuant to section of the Criminal Code, R.S.C. 1985, c. C-46 (the Criminal Code ), froze funds held by third party electronic payment processors for accounts associated with Banners Broker. The Criminal Restraint Orders statutorily expire six months after issuance. 14. The Receiver subsequently obtained copies of the affidavit evidence filed by the Crown in support of its application for the Criminal Restraint Orders. The evidence consisted of affidavits sworn by RCMP Constable Katie Judd on July 17, 2014 and July 28, 2014 ( RCMP Affidavits ). 15. The RCMP Affidavits detail the basis for what the RCMP investigators state is their reasonable belief that Smith and Dixit, through their operation of Banners Broker, have committed criminal offences related to the operation of a pyramid scheme, fraud, possession and laundering of the proceeds of crime, and criminal misrepresentations contrary to the Competition Act, R.S.C. 1985, c. C-34 (the Competition Act ). 16. Constable Judd identified a number of other Canadian incorporated entities believed to be operated by Smith and/or Dixit and associated with BBIL and the Banners Broker business. Legal*

30 5 The Joint Liquidators independent investigations, conducted prior to the Receiver s review of the RCMP Affidavits, identified certain of the same parties as being associated with BBIL. 17. Specifically, the entities identified by the RCMP Affidavits include: (a) (b) Ontario Incorporated o/a Local Management Services; Parrot Marketing Inc. (formerly o/a Canada Limited) ( Parrot Marketing ); (c) (d) Ontario Corporation; Stellar Point Inc. (formerly o/a Canada Inc. and Bannersbroker Limited ) ( Stellar Point ); (e) (f) Dixit Holdings Inc. (formerly o/a Canada Limited ) ( Dixit Holdings ); Any other entity operating under the business names Bannersbroker, Banners Broker, Bannersbroker Limited, Bannersmobile, BannersMobile or Banners Broker Belize (collectively, the Associated Corporations ) Receiver s Motion for Additional Investigative Authority 18. In reliance in part on the RCMP Affidavits, the Receiver sought and obtained an order for, among other things, the grant of certain additional investigative authority in respect of the Associated Corporations ( Further Supplemental Order ). 19. The Further Supplemental Order requires persons with notice thereof to advise the Receiver of any books, documents, or other records related to the Associated Corporations in the person s possession or control, and to provide the Receiver with or allow the Receiver to make copies of such documents. Legal*

31 6 Order for Continued Restraint of Payment Processor Monies 20. By early January 2015, the Receiver had formed the view that the source of the restrained funds held in the payment processor accounts very likely derived from deposits/investments made by Banners Broker affiliates. The Receiver further believed, and continues to believe, that there had been significant inter-company transfers of affiliatecontributed funds between BBIL and the Associated Corporations. Moreover, and as discussed in the Receiver s second report to court, dated January 12, 2015, roughly half of funds received by Banners Broker from affiliates were not used to fund withdrawal requests by affiliates, resulting in tens of thousands of individual creditors. 21. In these circumstances, the Receiver has reason to believe that monies restrained by the Criminal Restraint Orders are properly claimable by creditors of BBIL and/or the Associated Corporations. 22. As the Criminal Restraint Orders were set to expire, the Receiver brought a motion returnable January 14, 2015, for an order that all monies held pursuant to the terms of the Criminal Restraint Orders continue to be held pursuant to the terms of the Criminal Restraint Orders, and not be released without the written consent of the Receiver or further order of the court on notice to the Receiver. The motion was granted by order of the Honourable Mr. Justice Newbould dated January 14, 2015 ( Order: Restraint of Funds ). 23. The Order: Restraint of Funds provides that, effective as of the expiry date of each underlying Criminal Restraint Order, all money or credits held pursuant to such Criminal Restraint Order(s), be transferred to msi Spergel inc., in its capacity as court officer, to be held in a separate interest-bearing trust account, separate and apart from the receivership of BBIL, pending further order of this court. Legal*

32 7 Receiver s Motion for Additional Investigatory Authority Over the Additional Dixit Entities 24. As detailed in the Third Report, the Receiver prepared a global Flow of Funds Analysis in an effort to understand how affiliate contributions were received and disbursed over the period of Banners Broker s global operations (the Flow of Funds Analysis ). In the course of this work effort, it was determined that two additional companies had significant Banners Broker related dealings: Canada Inc. o/a Dixit Consortium Inc. ( Dixit Consortium ) and Dreamscape Ventures Ltd. ( Dreamscape, with Dixit Consortium, collectively the Additional Dixit Entities ). The companies are believed to be controlled by Dixit. 25. By order dated August 8, 2015, the Receiver was granted investigative authority in respect of the Additional Dixit Entities (the Additional Authority Order ). 26. The Additional Authority Order requires persons with notice thereof to produce to the Receiver books, documents, or other records related to the Additional Dixit Entities. III. Developments Since Last Report Relevant to this Motion A. Dixit s Cease and Desist Demand 27. On or about August 12, 2015, the Receiver, the Joint Liquidators, and lawyers at Cassels Brock and Blackwell LLP, counsel to the Receiver and Joint Liquidators, received notices to Cease and Desist from Dixit (the Cease and Desist Notices ). 28. The Cease and Desist Notices purport to provide notice to cease and desist grievous trespass creating great harm to the man master rajiv of the family dixit [sic], known to you and other third party interlopers as Mr. Rajiv Dixit. A copy of one of the Cease and Desist Notices is attached hereto as Appendix A. 29. The Cease and Desist Notices further state that if the Court Officers and their counsel do not cease and desist all actions and claims against Mr. Rajiv Dixit and or Rajiv Dixit forthwith Dixit will invoice them $47,304, silver dollars [p]lus, for each second starting at 12:00:01 Legal*

33 8 AM until the cease and desist is complied with, each Respondent will be charged an additional $36.00 per second. 30. After receiving the Cease and Desist Notices, counsel for the Court Officers contacted Dixit s counsel regarding retracting the notices. The notices remain outstanding. 31. The Receiver considers the Cease and Desist Notices to be in violation of the automatic stay. Further, the fact they were delivered and not retracted is, in the Receiver s view, indicative of a lack of respect for the process and an unwillingness to cooperate fully with the Receiver on some levels. In the interests of full disclosure, counsel for Dixit has been responsive to requests of the Receiver as far as his instructions permit. This, as indicated, did not extend to explaining and addressing the Cease and Desist Notices to the Receiver s satisfaction. 32. The Receiver intends to provide additional details regarding the Cease and Desist Notices in its next and more comprehensive report to court. B. Dixit Moves to British Columbia 33. The Receiver was advised by Dixit s counsel in mid-august 2015 that Dixit was moving from Ontario to Vancouver, British Columbia. The Receiver obtained a parcel register for Dixit s Toronto area residence shortly thereafter. The parcel register indicated that Dixit sold his house on July 20, 2015 for $575,000. The sale proceeds have been accounted for and the Receiver understands that at least a portion of the sale proceeds were paid to Dixit ($11,110.66). C. Dixit Produces Certain Documents to the Receiver 34. Dixit s former counsel, MSM, provided the Receiver with certain books and records relating to BBIL, the Associated Corporations and the Additional Dixit Entities in September MSM produced a total of seven boxes containing over 1,600 documents to the Receiver (the MSM Documents ). The Receiver was advised at the time that Dixit waived privilege over the documents. Legal*

34 9 35. Additionally, on or about September 11, 2015, Dixit produced nine boxes of Stellar Point records, containing over 7,500 documents (the Stellar Point Documents ) to the Receiver. 36. The Receiver and its counsel are in the process of reviewing and analyzing the (over 9,000) documents received from MSM and Dixit. The Receiver is also in the process of incorporating these documents into the Flow of Funds Analysis. The most recent version of the Flow of Funds Analysis prepared by the Receiver is attached hereto as Confidential Appendix B. 37. The Flow of Funds analysis attached at Confidential Appendix B was prepared in part based on Smith Confidential Information. For this reason, and consistent with the terms of the October 23, 2014 Confidentiality Order, the Receiver respectfully requests that the appendix be treated as confidential and sealed. A copy of the Confidentiality Order is attached as Appendix C. 38. The fact that this document production was made by Dixit is reported in the interests of providing full disclosure and in recognition of the ex parte nature of this motion. D. Criminal Charges Against Dixit and Smith 39. Dixit and Smith were arrested and charged with violations of the Criminal Code and the Competition Act on December 9, They were charged under the Criminal Code with (i) defrauding the public over $5,000; (ii) possession of proceeds of crime; and (iii) laundering proceeds of crime. They were also charged under the Competition Act with (i) operating a pyramid scheme; and (ii) making false or misleading statements. A copy of the press release from the Toronto Police Service detailing the charges against Dixit and Smith is attached hereto as Appendix D. 40. The Toronto Police have alleged, among other things, that: Legal*

35 10 (a) between October 2010 and March 2013, a pyramid scheme known as Banners Broker was operated out of a Church Street address in Toronto ; (b) by the end of 2012, over $93 million US was obtained from thousands of participants, of which approximately $45 million was paid back to participants in the scheme ; and (c) the remaining funds were funneled to a number of offshore accounts in Belize, St. Lucia, Cyprus, and others. 41. The Receiver attended the show cause hearing which was held the same date as the arrests of Dixit and Smith. Dixit and Smith were released on bail. The show cause hearing itself is subject to a publication ban. IV. Evidence Directly Relevant to the Production Request A. Difficulties Obtaining Documents and Records 42. Securing the production of the records of BBIL, the Associated Corporations and the Additional Dixit Entities has continued to prove difficult and time-consuming. This is because, among other reasons: (a) Banners Broker lacked a document management system and records retention system; (b) receipts and pay-outs, including affiliate debits and credits, were frequently handled non-systematically. Inter-company transfers were not recorded properly, or at all. Other payments were made in cash. Although transaction records exist at the financial institution end, there is no single source of Banners Broker maintained financial records or support documentation; (c) Banners Broker wound down operations after the commencement of the Isle of Man Proceedings and the Receiver is advised by Smith that Banners Broker Legal*

36 11 ceased operating on August 6, Employees were laid off, office space was vacated and such records as did exist became more difficult to locate and retrieve as a result; (d) Banners Broker s main service provider, Stellar Point, ceased operating in or about October Such Stellar Point records as existed at that time became less accessible as a result; (e) the police executed eight search warrants in February 2015 to assist in their investigation. Thousands of documents and over one hundred electronic devices were seized and are currently not available to the Receiver for the purposes of its investigation; and (f) Banners Broker entities did not utilize a professional accounting firm or have an in-house accounting professional. Neither BBIL nor many of the Associated Corporations and Additional Dixit Entities filed tax returns as may have been required during the period that is of interest to the Receiver. 43. The Receiver has pursued written documentary production requests of all depository Schedule I, II and III financial institutions in Canada. The production requests were initially specific to BBIL, but were subsequently expanded to include financial records and accounts in respect of the Associated Corporations (following the granting of the Further Supplementary Order) and the Additional Dixit Entities (following the granting of the Additional Authority Order). 44. In total, the Receiver has made written requests for production to approximately 100 financial institutions, 9 payment processors and 46 other third parties (including service providers, professional services firms, individuals and Associated Corporations connected to Banners Broker). Legal*

37 To date the Receiver has received financial records that are responsive to its inquiries from the following Canadian financial institutions: (a) (b) (c) CIBC; TD Canada Trust; and Royal Bank of Canada. B. Receiver Identifies Transactions of Interest (or TOI s) 46. The financial information provided to the Receiver is of varying degrees of completeness. Consequently, there remain material gaps in the Receiver s ability to complete a reasonably detailed accounting of the receipt and disbursement of BBIL funds. For example, the Receiver has identified US$1.7 million in disbursements made by Dixit or entities believed to be controlled by him that the Receiver has been unable to trace, out of a total of US$16.7 million in receipts by Dixit or entities controlled by him As of today s date, the Receiver has reviewed and analyzed 7 accounts belonging to Parrot Marketing, Stellar Point, Dixit Holdings, and the Additional Dixit Entities (the Accounts, each an Account ). During the course of this review, the Receiver has identified 50 transactions of interest, all over $5,000 ( TOI ) in respect of which the Receiver has been unable to identify the recipient of the debit (withdrawal) from the Accounts. This, alone, results in a US$1.7 million gap in the Receiver s accounting. The TOI are listed in a Schedule at Appendix E to this Fourth Report. 48. The TOI can be broken down into five categories: (i) debit memos; (ii) withdrawals; (iii) direct deposits; (iv) illegible documents; and (v) transfers. 1 Of the $1.7 million in unverified disbursements, there is a single $10,000 transaction from a Parrot Marketing bank account held with CIBC. The remainder of the unverified disbursements were made to bank accounts belonging to entities controlled by Dixit. Legal*

38 13 i. Debit Memos 49. Of the US$1.7 million in unverified disbursements, approximately US$632, of the disbursements were described as debit memos on the Account statements (the Debit Memos ). All of the Debit Memos are from accounts held with CIBC. 50. While each of the Debit Memos list a date and amount for all of the transactions, they do not list a recipient. Further, CIBC has not produced supporting documents for the Debit Memos sufficient to identify this information. However, it is logical to believe that such documentation exists in light of the quantum of the amounts transferred. Some of the Debit Memos are for large amounts of money, for example: (i) US$100, on June 20, 2013 from Stellar Point CIBC account ; (ii) US$89, on June 5, 2013, from Stellar Point CIBC account ; and (iii) US$66, on July 17, 2013 from Stellar Point CIBC account. Thus, the Receiver is seeking production of documents within CIBC s possession or control sufficient to identify the recipient of the funds transferred in the Debit Memos. ii. Withdrawals 51. A total of US$696, of the TOI were described in the Account statements as withdrawals (the Withdrawals ). All of the Withdrawals are from Accounts held with RBC. The Receiver understands Withdrawals to be cash withdrawals from the RBC Accounts. The largest transaction of the Withdrawals is for US$225, on May 1, 2012, from Stellar Point RBC account. In light of the quantum of each of the Withdrawals from the Accounts, it is reasonable to believe that RBC may have documentation, including withdrawal slips, that would identify those individuals who made the Withdrawals from the Accounts. The Receiver is thus requesting production of the same. iii. Direct Deposits 52. A further US$299, of the TOI are described in the RBC Account statements as direct deposits (the Direct Deposits ). The majority of these transactions are described as Legal*

39 14 Pay Emp Vendor on the Account statements. All of the Direct Deposits are from Stellar Point RBC account. 53. As with the Debit Memos and Withdrawals, each of the Direct Deposits on the Account statements list a date and amount, but do not list the recipient of the funds transferred. The Receiver believes that RBC may have documents reflecting the recipients of the Direct Deposits. iv. Illegible Documents 54. After reviewing the documents produced by the Financial Institutions to date, several of the documents produced by the Financial Institutions are illegible (the Illegible Documents ). The majority of the Illegible Documents are cancelled cheques from Stellar Point RBC account. The Receiver believes that the Financial Institutions may have more legible copies of the documents and is seeking production of the same. v. Transfers 55. Finally, several of the TOI are described in the Account statements as transfers (the Transfers ). The Transfers account for US$70, of the US$1.7 million in disbursements to Dixit or entities controlled by him. 56. As with the Debit Memos, Withdrawals, and Direct Deposits, the descriptions of the Transfers in the Account statements list a date and the amount transferred, but do not list the recipient of the funds transferred. The Receiver believes that the Financial Institutions may have additional documents containing details sufficient to identify the recipient of the funds transferred in the Transfers and is seeking production of the same. C. Visa Card Statements 57. During the course of the Receiver s review of bank accounts belonging to Stellar Point and Dixit Holdings, the Receiver has identified three Visa Cards that received over US$2.2 Legal*

40 15 million from the Stellar Point and Dixit Holdings bank accounts. Visa card ( Visa 3 ) alone received over US$1.3 million in payments. 58. On May 13, 2015, counsel for the Receiver wrote to CIBC and requested additional information with respect to the Visa Cards as well as 21 other bank or credit card accounts (the CIBC Request ). A copy of the CIBC Request is attached hereto as Appendix F. CIBC responded to the CIBC Request on May 21, 2015, and agreed to provide account documents for six of the 24 accounts. However, CIBC declined to provide account documents for the remaining 18 accounts, including the Visa Cards, because the accounts were not in the names of the parties identified in the order and therefore determined to not be a part of the order. A copy of CIBC s response is attached hereto as Appendix G. 59. Earlier this fall, and subsequent to the CIBC Request, the Receiver commenced its review of the Stellar Point Documents. Included in those documents are an incomplete set of account statements for Visa the account statements for Visa 3 that confirm that the card is in Dixit s name. Further, one of 3 that was reviewed by the Receiver also lists transactions for Visa ( Visa 5 ). As a result, the Receiver believes that Visa 5 is linked in some manner to Visa The Receiver has not been able to identify the account holder of Visa ( Visa 6 ). 61. Based on the Receiver s review of the Stellar Point and Dixit Holdings bank accounts, the Receiver has determined that the Visa Cards received the following amounts from the CIBC Accounts: Legal*

41 16 Visa Card Amount Received Visa 3 US$1,330,539 Visa 5 US$736,728 Visa 6 US$138,143 Total: US$2,205, The payments to the Visa Cards represent 12.5% of the total amount of funds received by Dixit or entities controlled by him and accordingly constitute a significant gap in the Receiver s ability to account for the receipt and disbursement of BBIL funds. This US$2.2 million is in addition to the US$1.7 million in TOI described above. 63. The Receiver is seeking statements for the Visa Cards for the following time periods: (a) Visa 3: September 1, 2012 to December 31, 2013; (b) Visa 5: September 1, 2012 to December 31, 2013; and (c) Visa 6: June 1, 2012 to October 31, The Receiver has limited its request to this timeframe because it accords with the time period in which transfers were made from the CIBC Accounts to pay down the Visa Cards. According to the CIBC Account statements reviewed by the Receiver, Visa 3 received payments from the CIBC Accounts from September 2012 to November 2013, Visa 5 received payments from the CIBC Accounts from September 2012 to January 2013, and Visa 6 received payments from the CIBC Accounts from June 2012 to September Thus, the Receiver believes that the requested time period is appropriate because it will capture any assets purchased using the Visa Cards (and ultimately paid for with funds from BBIL or the Associated Corporations). Legal*

42 17 D. Reasons For Seeking Production Directly From Financial Institutions 65. The Receiver believes that the Financial Institutions may have additional and more detailed transaction information relating to the source and disposition of each TOI (the TOI Records ). Such detail, to the extent it goes beyond the summary descriptions appearing on the Account statements, will enable the Receiver to advance its mandate to locate and account for the assets of BBIL, the Associated Corporations and the Additional Dixit Entities. 66. Similarly, CIBC would likely have account statements (with the TOI Records, collectively, the Records ) for the Visa Cards. 67. The Records relate to nearly a quarter of the disbursements received by Dixit or entities controlled by him and thus not only assist the Receiver in fulfilling its mandate to account for BBIL and related corporation assets, but also to locate any such assets and potentially recover on the same. 68. It is the Receiver s strong preference to obtain Banners Broker related business and financial information from independent third party financial institutions rather than rely solely on the former principals of Banners Broker to produce records. Third party produced information is not only more likely to be efficiently obtained, but also reliable and complete. 69. To date, the Financial Institutions have cooperated with the Receiver s requests, and the Receiver intends to work cooperatively with them going forward. The Motion is intended to provide the Financial Institutions with such appropriate legal direction and certainty as they may require to address the Receiver s requests regarding the TOI and the Visa Cards. 70. The Receiver is willing to compensate the Financial Institutions for their reasonable costs of producing the Records. Legal*

43 18 V. Ex Parte Nature of this Motion (in respect of Smith and Dixit) 71. The Receiver intends to bring the Motion on notice to the Financial Institutions but without notice to Smith, Dixit, BBIL, the Associated Corporations and the Additional Dixit Entities (collectively, the Parties ). 72. The Receiver is concerned that if the Parties are provided with notice of the Motion they would have an opportunity to move any funds remaining in Canada beyond the reach of their creditors and the Receiver, and outside the jurisdiction of this Court. Based on the Receiver s investigation to date, and as outlined in the press release issued by the Toronto Police Service, the Parties appear to have a demonstrated capacity to transfer funds off-shore. VI. Recommendations 73. Based upon the foregoing, the Receiver respectfully requests that this Honourable Court issue an order: (a) directing that the Financial Institutions provide the Receiver with transaction details in respect of the TOI; (b) directing that CIBC provide the Receiver with account statements for the Visa Cards; (c) directing that the Receiver reimburse the Financial Institutions for their reasonable costs in producing the Records to the Receiver; (d) directing that the Financial Institutions, and any other person or entity with knowledge of the Motion and any order granted in connection therewith (the Order ), refrain from disclosing the Motion, the Order, and any actions taken in connection therewith except as required by law; (e) granting a sealing order with respect to Confidential Appendix B to this Fourth Report; and Legal*

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64 Broadcast time: 10:39 Wednesday, December 9, 2015 Financial Crimes Case #: Arrests in $93M US pyramid scheme, Toronto and Vancouver men charged The Mass Marketing Section of the Toronto Police Service Financial Crimes Unit is a member of the Toronto Strategic Partnership against Cross-Border Fraud. The partnership represents a combined enforcement strategy, specializing in the investigation of mass marketing fraud in, or originating from within the province of, Ontario with cross-border implications. In January 2013, the Financial Crimes Unit started an investigation into an alleged pyramid scheme. The Toronto Police Service was assisted by investigators from the RCMP, Competition Bureau of Canada, Ministry of Government and Consumer Services, Ministry of Finance, U.S. Federal Trade Commission, FINTRAC, and the Canada Revenue Agency. It is alleged that: - between October 2010 and March 2013, a pyramid scheme known as Banners Broker was operated out of a Church Street address in Toronto - the scheme offered participants the opportunity to double their money by investing in an advertising company that had access to a globally renowned network - participants were led to believe their investments were being applied towards a program that offered payment for the direction of web traffic via referral links - the program's existence was entirely dependent upon the fee-based entry of new members and little or no real product or service was provided - new investors were drawn into the scheme via a series of false or misleading representations - by the end of 2012, over $93 million US was obtained from thousands of participants, of which approximately $45 million was paid back to participants in the scheme - the remaining funds were funneled to a number of offshore accounts in Belize, St. Lucia, Cyprus, and others ID: / 2

65 On Wednesday, December 9, 2015, Christopher George Smith, 45, of Toronto, and Rajiv Dixit, 45, of Vancouver, were arrested. They are charged with: 1) Defraud the Public - Over ($5000) 2) Possession of Proceeds of Crime 3) Launder Proceeds of Crime 4) Operate Scheme of Pyramid - Selling (Competition Act) 5) Make False or Misleading Representations (Competition Act) The were scheduled to appear in court at Old City Hall on Wednesday, December 9, 2015,. The proceedings are subject to a publication ban. Watch the news conference here. Please download the Toronto Police Service Mobile App for ios or Android. For more news, visit TPSnews.ca. Constable Victor Kwong, Corporate Communications, for Detective Sergeant Ian Nichol, Financial Crimes ID: / 2

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